Why Rajan is the Governor we needed, not the one we deserve.

As with any high-profile appointment in the GOI, Raghuram Rajan’s tenure has been full of its fair share of controversies. On June 18, Rajan decided to call it quits after he decided not to take up a second term as RBI governor. Appointed in September 2013 as an executive appointee by the  UPA II dispensation, he thus becomes the first Governor not to have completed a full tenure of 4 years after the 1991 liberalization period. His high-profile appointment made him a darling of the India industrialists and Lutyens elite. His exit drew an immediate barrage of criticism and outrage from all quarters, right from Industrialists, to bankers, to Journalists to even the members of the government which appointed him.

So, the question one needs to ask is: Is Rajan worth the outrage that was generated by his exit? To answer this, we need to look at several of arguments put out by his ‘Bhakts’

  1. Rajan was the main reason of stabilized inflation in the country: This is a very vague and hazy idea. The credit for low inflation, cannot go to Rajan’s monetary policies alone, because Oil prices had seen a precipitous drop from 100$ to just 30$. This very much benefited India a lot at a time when Modi tookver the reins of a stodgy economy inherited from the corrupt congress government earlier.
  2. Rajan caused banks to cleanup balance sheets by recognizing NPAs openly: This argument is again very misleading as the consequences of this actions are never discussed. Everyone knows that our banks have been accumulating NPAs, bad loans etc for decades. FIIs have been planning to invest heavily in India, especially in Indian Banks (because owning bank stocks help in controlling the bank itself. i.e Foreign countries can indirectly control our economy if they can control our banks). But the bank stock prices were overvalued. So, they used Rajan to whip these banks with such sudden shock to such an extent that they start reporting losses due to extended provisioning. This caused panic in stock market causing most of the bank stocks to crash, thereby making their stock valuations very cheap. Now, the FIIs will quickly buy these undervalued stocks & get a significant stake in our banks. That’s the whole drama of bank NPAs. It is a well orchestrated strategy by the Rajan to help FIIs (especially US) get our bank stocks for extremely low prices & thus help them get significant stake/control in our banks. The timing of this shock to the Indian banks is also suspect as this was done during the NDA II regime. It wasn’t anybodys case that this was to be done during UPA regime as well, but this will serve as an omen of Rajan’s own inaction during the initial years of his tenure
  3. His work compared with previous governors: There aren’t many coherent discussions citing objectively, what exactly Rajan achieved in his tenure. This does great disservice to the common people who get confused with the narrative dished out by the media. As Sam Iyengar writes in Swarajya, ” Not one credible article has been published that walks through his various roles, and importantly, his specific achievements. The entire discussion about Rajan’s desirability conflates his pedigree with performance, reputation with results. There have been some broad brushes about how he is reforming the Indian banking system and making India look credible globally. We have not seen any meaningful comparison of performance between him and other RBI governors. Along with informed debates about what other governors from the homegrown RBI pipeline would have done in the same set of circumstances.” The RBI’s anti-inflation battery  was not invented by Rajan; it comes from the institution’s internal machinations and years of experience.

It’s not as if Rajan was a newbie to the way the Government functions. He was Chairman of the High level committee on finance sector reforms – 2007-2008, Economic Advisor to the Prime Minister of India (honorary) – 2008-2012, Chi f economic Advisor, Ministry of Finance, GoI – 2012-2013, and finally, Governor, RBI – 2013 onwards. Brought in by the the then finance minister P Chidambaram, in the wake of policy paralysis as a result of unearthing of scams in the congress led regime.

Then the full frontal attack on Rajan by RS MP Subramanian Swamy happened. He cited several reasons in his two letters ( read them here and here). This was the first time that a governor was attacked in this fashion. This was uncalled for because the Governor post is not a political one. This necessitated government to deal it with an even-handed apporach. To be sure since Rajan was a UPA II appointee, Modai could have sacked him there itself, but nonetheless he was allowed ro complete his term. No governor’s tenure is complete bereft of friction between RBI and the finance minstry. This is healthy as both follow their own paths to ensure fiscal and financial stability.

Rajan did his case no favors by making loaded political statements against the government. It is this what made him the posterboy of the SLOB (Secular and Leftist Outrage Brigade). Considering he made statements on the intolerance debate which is unprecendented in the annals of the famed institution, he also made light of the government efforts to effect an export-led recovery of the Indian economy. On top of that, his innuendos on Modi being like Hitler further queered the pitch for his sacking. (you can read more here). This got the goat of Swamy who then went on a rampage (avoidably so) against the governor levelling all sort of allegations on him. The die was cast.

Is Rajan so special so as to idolise him as a god? Perhaps not because his predecessors also faced terrible times for the economy and came out trumps. Whether it is  S Venkitaramanan who contained the damage wrought by the Harshad Mehta scam in the early 1990s. Or for that matter C Rangarajan, who used monetary policy to crush the runaway inflation that was rearing its head in mid-1990s. And the list goes on for others who manned the Mint Street.

The RBI needs people who are independant in their thinking as well as carve out their own policy initiatives. But is the job of the governor that sacrosanct? As R Jagganathan points out in his peice, ” it is important not to hype up the role of the RBI Governor as some kind of superman or superhero. Rajan has been a very high-profile governor, and he has also rubbed politicians the wrong way by airing his views in public, but the job does not need a high-profile man or woman to be effective. Often, a low-profile person can be just as effective.”

Comparing the role with that of the US Fed Reserve Chairman, Jagganathan continues, “The US Fed Chair is one of the world’s most hyped up jobs, when it need not be. The past three incumbents have hardly done anything to distinguish themselves as anything special. Greenspan’s two successors have done little more than keep money cheap and funds slowing like water. This is pretty much what the European Central Bank and the Governors of the Bank of Japan and the Bank of China have been doing.” That’s the point.

While pink paper journalists and reporters are busy saluting the international reputation of rajan, one wonders if that helps at all except playing to the world gallery as Rajan did, by making possibly borderline pejorative references to India as a proverbial blind king in the kingdom of the blind.

Modi did the right thing, by keeping Rajan after he got elected in 2014 as the PM of India, knowing very well the International media’s suspect (or outright?) hostility towards him. Having an ideological opposed liberal in the Mint street helped soften the blows of international economic thinkers towards India. This is statecraft, and if India’s interest is fulfilled, then Rajan’s scalp in the hindsight may well be justified.

Thus, as Jim Gordan says to the child for Batman at the end of the movie, The Dark Knight, “He’s hero we need. Not the one that we deserved”. Rajan may very well have been the dark knight of India’s economic polity. Only history may vindicate him.




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